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Category: Tax – Debt Garnishments

  • Chapter 13 Bankruptcy and Tax Refunds

    Chapter 13 Bankruptcy and Tax Refunds

    When you file for bankruptcy, any property you own becomes a part of the bankruptcy estate which is overseen by the bankruptcy trustee. Many people are worried about any tax refund or personal injury claim they receive during their bankruptcy since it could be used to pay your creditors. However, lawyers of Dallas based bankruptcy law firm Recovery Law Group inform that bankruptcy laws allow you to modify your Chapter 13 plan in some cases to excuse payment of tax refunds.

    You are expected to list your income, your assets, and your debts when you file for a Chapter 13 bankruptcy. This is then used to calculate your disposable income which is used to pay your unsecured nonpriority creditors. Disposable income is calculated by deducting all reasonable and essential expenses like food, shelter, transportation from your monthly income. Since priority and secured debts are to be paid every month, any money that remains is termed as disposable and used to clear your unsecured debts over the course of your repayment plan.

    Any tax refund that you get in the middle of the bankruptcy can be considered as disposable income as the funds were not included in the income-expense calculations. Moreover, since you were managing your necessary expenses and planned payments with your monthly income, a tax refund is surplus income which can be used to pay your creditors. However, if you could prove that the tax return isn’t disposable and is required by you to take care of some unexpected bills, the court might allow you to keep the refund money. For more details on this consult expert bankruptcy lawyers at 888-297-6023.

    Getting your tax refund excused by the court

    Any tax refund you get during your Chapter 13 bankruptcy Dallas needs to be justified as essential for your use, else it will be termed as disposable income by the bankruptcy trustee and used for paying your unsecured debts. You can modify your bankruptcy plan to excuse a tax refund with a reasonable excuse. A separate plan needs to be filed for every tax refund modification you plan to take. The modified plan should include which specific tax refund you would like to be excused, the amount of the refund along with a reason specifying why you need to keep the refund money.

    A tax refund is granted only if you can prove that the expense is unexpected and essential for your day-to-day activities and that you will not be able to afford it on your regular income. A respite might be available for reasons like:

    • Unexpected medical expenses for yourself or your dependents;
    • Car repair or a down payment for replacement vehicle;
    • Any appliance repair or replacement;
    • Funeral expenses.

    Having proper documentation for how you spent the money after getting the refund by the court might come in handy when you need to file a plan for another refund. Alternately, you could excuse tax refunds by not committing any tax refunds in the plan. However, this might cause the bankruptcy trustee as well as creditors objecting to it unless you could give a compelling reason (large annual expense) or you limit the amount in the plan so that you don’t receive more money than specified. Consulting with a bankruptcy attorney can open more vistas for you on how to save tax refunds.


      *Are you more than 60 days past due on your mortgage?

      *Do you own a home?

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    • Taxes in Bankruptcy

      Taxes in Bankruptcy

      People with overwhelming debts often seek bankruptcy as a viable solution. However, even in bankruptcy, certain debts such as secured debts like mortgage and car loan as well as government taxes and child and spousal support cannot be avoided. Apart from federal taxes, certain states like California also impose state income tax on its citizens. Similar to credit card debt, tax debt also gets added up and often becomes difficult to manage. A bankruptcy filing can definitely get rid of your unsecured debts but many people are confused regarding its effect on their taxes.

      What to know before filing for bankruptcy?

      According to Los Angeles based bankruptcy law firm Recovery Law Group , a number of options are available for dealing with income tax debts prior to bankruptcy filing such as “offer in compromise” (OIC), installment agreements, or filing a previous tax return. Since every financial obligation and individual circumstances are different, the solution also needs to be tailor-made for every client, after careful consideration of all factors.

      OIC option is available to taxpayers with no delinquent returns, who have made all tax payments and are not involved in active bankruptcy. OIC is similar to debt settlement, you offer to pay IRS less than what you owe and if the terms are agreed, you will be able to satisfy your debts. This option is excellent for those people having a higher tax liability and lower income to pay off debts. Initial high payment is expected from the taxpayer in OIC apart from complete compliance with the terms and conditions during the tenure and an additional 5 years after that.

      You can also avail to pay your taxes in installment if the IRS agrees. An installment agreement makes you compliant in the IRS’s eyes and prevents any possible debt collection steps. Additional benefits include reduction of harassed phone calls and letters from IRS while the downside to the agreement is that you continue accumulating interest on the tax obligation for the amount of time it takes to pay the debt.

      Another way of addressing this delinquent tax debt is to file for amended past due to tax return. This option is preferred as filing for it results in a direct reduction in tax liability due to preparer error. It is essential to weigh all the options with your bankruptcy lawyer or financial/tax expert who is aware of statutes of limitations as well as applicable tax codes.

      Viability of bankruptcy 

      Filing for bankruptcy might relieve you of some tax liability from both federal income tax as well as the state tax. However, the tax debt discharge depends on a number of factors like:

      1) duration of tax debt, depends on the date tax returns were due when bankruptcy papers were filed.

      2) the date when tax assessment was due.

      3) whether you are guilty of avoiding (willful or fraudulently) any tax debt.

      4) apart from this, to discharge federal and California state tax during bankruptcy, you need to fulfill these requirements –

      * tax debt is due for over past 3 years from the more recent of either an extension or the original filing date;

      * taxpayer had filed returns in a timely fashion or it has been a minimum of 2 years since the tax returns were filed;

      * taxpayer has not attempted to commit any fraud or tax evasion and the taxes have not been assessed in the past 240 days (240-day rule)

      Benefits of the automatic stay in bankruptcy 

      Consumers can file for bankruptcy under either chapter 7 or chapter 13. In the case of former, all unsecured debts are discharged including income tax if you meet the above-mentioned conditions. During chapter 13 a repayment plan is devised to make payments to all your creditors including IRS if you have included them. You can also enter in an agreement with the IRS to get a rebate in your debts. Any remaining debts are discharged after the duration of your repayment plan. This may include income tax debts if you meet the criteria.

      Whichever chapter of bankruptcy you choose to file under, both come accompanied with the benefit of the automatic stay. This puts all collection actions including foreclosure, wage garnishment and repossession on hold.

      Though you might not be able to get all your tax liabilities discharged when you file for bankruptcy, you might be able to come to a working agreement with the tax credit on a repayment plan within the bankruptcy.

      In case the IRS has obtained tax lien against your property, bankruptcy won’t be able to help you much. Though they will retain the claim on your property, your personal liability will be wiped out. In this case, if the IRS sells the property and gets less than what you owe, you cannot be held for any deficiency. Bankruptcy ensures that none of your assets are seized by the IRS without court permission.

      To fully understand your rights when it comes to taxes and bankruptcy you need to be aware of IRS bankruptcy tax guide. In case you are struggling with tax debts and are considering bankruptcy as an option, call 888-297-6203 to consult with expert bankruptcy lawyers regarding your case.


        *Are you more than 60 days past due on your mortgage?

        *Do you own a home?

        Are you currently working?

        By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.

      • Tax Debts Can Drive Even the Rich and Famous to Bankruptcy

        Tax Debts Can Drive Even the Rich and Famous to Bankruptcy

        Despite the popular notion that bankruptcy affects only those people who have low income, there are numerous instances when the rich and the famous had to resort to bankruptcy to get rid of their huge financial debt. One of the notorious cases is that of O.J. Simpson’s lawyer, F. Lee Bailey’s. He gained popularity when he defended O.J. Simpson in the criminal trial for the double murder of Simpson’s ex-wife Nicole Brown and her friend Ron Goldman. Bailey had a brush with success earlier too, representing people in other high profile cases. Unfortunately, despite rubbing shoulder with high placed people, Bailey filed for bankruptcy in Maine to get IRS debts (from 1993-2001 tax returns) to the tune of more than $5 million discharged.

        Why is dealing with tax debts difficult?

        Dallas based law firm Recovery Law Group elaborates that tax debts are often the most complicating types of debts to deal with. This can be attributed to the fact that similarly to student loan and child and spousal support payments, they cannot be discharged during bankruptcy. You have to pay them off to get rid of them. Since IRS rules are complicated, it is not possible for the average human to get a grasp over them. It is no wonder that people hire the services of specialized people like tax lawyers and accountants to deal with them. In case you receive a notice from IRS regarding any debt you owe you should contact 888-297-6203 for immediate assistance from specialized bankruptcy lawyers. It is important to contact the IRS to inquire about the details before accepting or contradicting them. In case the amount is immense, you need to take steps to fight for your right in the court. If their accusations are true, you need to make arrangements to pay the dues.

        Retired F. Lee Bailey had to face lots of obstacles to come up with the million dollars fine. Since he didn’t have that money with him and arranging the huge amount all at once was difficult, he required assistance. In case, you too are facing a similar situation of huge tax debts, a payment plan can be worked out with the IRS. In case, the matter is not handled immediately, action against you can be taken by IRS which may include wage garnishment and/or putting liens on your property. Since you owe the debt to the government, unlike other creditors, it does not require the court’s permission to collect the dues; it can do so as and when it pleases.

        Can bankruptcy aid in tax debts?

        Many people find bankruptcy a great aid in getting out of bad financial conditions. However, can bankruptcy offer protection in case of taxes owed to the government? Tax debts can be discharged during bankruptcy in certain cases. To get respite from them, you need to meet the following criteria:

        • Only Income tax debts can be considered.
        • The tax must be due originally at least 3 years prior to a bankruptcy
        • IRS assessment of the debt must have taken place a minimum of 240 days prior to filing or they haven’t yet assessed it.
        • The tax return for the year in question must be filed.
        • No fraud or evasion of taxes must be involved.

        Normally, people won’t find the criteria too difficult to meet, as long as the debt is old and no false information is provided. However, if there is a discrepancy in the information provided; like a false name or any money hidden from the IRS, you might have to pay the debt in full, even after bankruptcy. In the case of Bailey, he was accused of not paying applicable taxes as well as hiding money which he earned during his long and distinguished legal career. Disputing the claim has led to a long drawn legal battle which is causing him to infuse more money.

        Despite earning huge sums of money during his brilliant career as a successful lawyer, Bailey could not keep himself out of legal trouble due to debts owed to the IRS. In case, you too are facing similar tax-related issues with the IRS, it is important that you get all basic information related to the case and contact a legal expert or an accountant to look into the matter. In case, the debt is too much to be paid and you are already suffering through other financial issues, bankruptcy might be an ideal option. Getting timely professional help can make a huge difference to your bankruptcy case.


          *Are you more than 60 days past due on your mortgage?

          *Do you own a home?

          Are you currently working?

          By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.

        • Can Income Taxes be discharged in Bankruptcy?

          Can Income Taxes be discharged in Bankruptcy?

          The unsecured debts such as medical bills or credit card bills are discharged after people get a bankruptcy discharge. This is 3-4 months from a bankruptcy filing in case of Chapter 7 and after 3-5 years in the case of Chapter 13 repayment plan. However, some debts are not discharged like government taxes or spousal/child support, etc. Though under certain circumstances, local, state and federal income taxes can be discharged along with any interest and penalty fees in Chapter 7, Chapter 11 and Chapter 13 bankruptcy. However, not all taxes are dischargeable. To discern which taxes can and cannot be discharged, you need to consult with experienced lawyers like those of Dallas based firm, Recovery Law Group.

          How are income taxes discharged in bankruptcy?

          A substantial part of your income tax debt can be discharged in bankruptcy if it meets the 3-2-240 rule also known as the 3-year, 2-year, and 240-day rule:

          • According to the 3-year rule, any owed income taxes must be due for at least three years before the individual seeks a discharge by bankruptcy. Example: In case an individual’s income taxes were due on April 5, 2016, the person can file for bankruptcy no sooner than April 5, 2019.
          • As per the 2-year rule, the tax returns must have been filed a minimum of two years prior to the filing of the bankruptcy Example: If any person’s taxes are due on March 15, 2015, but the tax forms weren’t filed till May 1, 2016, the individual cannot file for bankruptcy until May 1, 2018 (two years after filing and more than three years from the due date).
          • Under the 240-day rule, evaluation of taxes must take place a minimum of 240 days prior to a bankruptcy filing or not at all. Example: In case a petitioner filed for his/her 2010 taxes on April 5, 2012, and then meets the 3-2-240 requirement on April 5, 2015, they can file for bankruptcy. However if a correction is filed or a new amount due to her is assessed by the IRS due to an error on their part, the 240-days clock will start over.

          Other actions, such as getting a taxpayer assistance order, previous bankruptcy filing or an offer in compromise, etc. may affect the 3-2-240 requirements. The specified time periods under the rules mentioned above are then deferred until the time any of the above-mentioned actions is pending. It should be kept in mind that any successful discharge of income tax in bankruptcy does not automatically end a tax lien. However, options are available to deal with such situations after bankruptcy. Another factor to keep in mind is that planned tax evasions and fraudulent activities are circumstances which may cause you to become ineligible for discharge. In case you wish to weigh your options regarding taxes and discharge, consult expert bankruptcy attorneys at 888-297-6023.


            *Are you more than 60 days past due on your mortgage?

            *Do you own a home?

            Are you currently working?

            By clicking “Submit”, whether I do or do not purchase any products or services on this website, I hereby give my express written consent to receive calls and SMS/text messages, including calls and SMS/text messages made and sent using automated dialing equipment and/or pre-recorded or artificial voice technology and email, about offers and deals that I wish to be kept informed about from (“Partners”), at the phone number and/or email address provided on this form, including any wireless numbers provided, even if I have previously registered the provided number on any Do Not Call Registry. If I do not make a purchase on this website, it is expressly understood that the Partners retain permission to contact me as specified earlier in this paragraph. Carrier SMS/MMS and data messaging rates apply. I also agree that by clicking “Submit” that I agree to the Privacy Policy and Terms and Conditions.

          • How to Prevent Bank Levies

            How to Prevent Bank Levies

            In case you have incurred huge debts and are in no financial condition to pay them off, the best resource available to you is to file for bankruptcy. To do the same you can either use one of the bankruptcy lawyers to file bankruptcy for you or you can do it yourself. However, as Sacramento based law firm Recovery Law Group explains, many times debtors filing for bankruptcy without any help from lawyers, end up into financial troubles like post-bankruptcy filing bank levies. (more…)